Embedded Payments

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by Dana Odom Head of Global Embedded Payment Sales at BlueSnap

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Embedded payments are increasing in popularity. Today’s software providers must embed payment functionality into their platforms for their clients and end customers to use, or they risk losing customers and falling behind the competition.

What Are Embedded Payments?

Embedded payments are when a software provider integrates or “embeds” payment functionality into their platform, allowing their clients to accept payments.

Without embedded payments, software platforms are forced to integrate with third-party software their clients want to use, which can be cumbersome and lacks any return. While the embedded payment service may still be third-party technology, the fact that it can be embedded directly into the software and white-labeled makes it appear to be a seamless part of the application. In these instances, the platform’s customers and their consumers never have to even see another service — all the onboarding verifications and transactions happen behind the scenes, and the payment is made seamlessly within the platform.

With embedded payments, whenever a customer wants to make a purchase, they are providing their payment information within the same experience rather than being kicked out to a separate software product run by a payment facilitator.

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Why Are Embedded Payments Important?

Embedded payments are important because they are essential for today’s software vendors. According to 451 Research, 75% of companies wish they could take advantage of embedded payments functionality from a software platform they already use. This adds value to the platform for its clients and allows them to offer their clients a better payments experience.

Embedded payment services are projected to continue to grow and expand thanks to this growing desire for software platforms to meet their clients’ needs. And more fintech companies are rising to the challenge to provide embedded payments services.

With embedded payments, software providers can completely control the experience, from designing the payments solution for their target industry to customer onboarding and ongoing support. By embedding payments with a third-party, software platforms also get a new revenue stream without all the work of creating the payment technology. According to JP Morgan,  software providers that embed payments into their platform see up to a 5X increase in value per customer.

Benefits of Embedded Payments for Software Vendors

Software vendors see significant benefits from embedded payments, including:

  • Greater control over the payment solution for a better user experience: When software vendors use embedded payments, they have more control over which features and functions they offer their customers. They decide how payments are implemented, allowing them to optimize the process by eliminating unnecessary elements. Using embedded payments also eliminates the need to integrate with multiple third-party payment solutions to meet their clients’ needs, preventing a lot of headaches.
  • Increased revenue and market value: One of the biggest opportunities for software vendors comes through the added revenue generated through processing fees and providing more value to their clients. Platforms that embed payments can monetize every payment accepted through the platform, which can be an important new source of revenue, upping overall market value.
  • Product stickiness for retaining and attracting clients: By offering a single source of functionality and payments, the platform eliminates the need for their clients to have multiple integrations with different technology (and competing vendors). This goes a long way toward helping clients free up technical and operational resources, which not only makes the payments process easier, but also cuts costs. This is very attractive to prospective clients and will make current clients think twice before shopping around for other platforms.

Benefits of Embedded Payments for Merchants (Clients)

For merchants, using embedded payments provide the following advantages:

  • Vendor consolidation: By working with one vendor for all the software needed to run a business, including payments, companies can streamline processes and resources that would otherwise be needed to support multiple software integrations.
  • Accelerated cash flow: Anything that makes it easier for customers to make payments is good for business. Too often, an extra step or appearance of an unfamiliar logo might scare a consumer away from finishing a transaction. Frictionless payments mean there’s less chance of checkout or shopping cart abandonment.
  • More captured data, allowing for added personalization: Merchants that use white-labeled embedded payments services can leverage the power of their brand and better curate the customer experience. Embedded payments serve as a rich source of data that provides added insights into the customer journey, including the types and frequency of transactions, user demographics and the company’s sales cycle.
  • Global expansion: Accepting cross-border payments can be rather complicated, and merchants interested in selling in new countries need to be aware of local regulations, local currencies, cross-border fees, and more. However, with the right embedded payments provided by their software platform, much of this might already be taken care of, making it easier for merchants to expand globally.

Benefits of Embedded Payments for Consumers

Consumers benefit from embedded payments as well, which is a further benefit for merchants. When customers are able to enjoy an embedded payment experience, they experience less friction in the process. This not only makes it more likely they’ll complete the transaction, but it increases their satisfaction and loyalty.

Challenges with Embedding Payments

While embedded payments offer many great benefits, implementing embedded payments on your own can be challenging. Payment processing requires the right infrastructure, as well as certain technical knowledge and payments expertise.

  • Embedded payment functionality requires considerable resource investment if you build it on your own: Processing payments requires millions of dollars in tech infrastructure, software development, banking licenses and the management of all compliance requirements. Even with that investment, embedding payments can be a nightmare without detailed knowledge of which processes need to be followed, and the most effective steps to take.
  • Payments compliance and licensing are complicated and costly: Compliance and licensing require obtaining specific certifications, passing an underwriting process and ensuring compliance with payment card industry (PCI) standards and other mandates.
  • There are necessary steps for onboarding every client: Every payment facilitator needs to ensure that every client is a legitimate business that’s accurately reporting revenue. This requires knowing how to fill out and submit KYC (Know Your Customer) and AML (Anti-Money Laundering) paperwork. Good payment platforms will also have steps to test general functionality, provide personnel training for clients and offer constant support.
  • Global payment facilitation is even more complicated: All of the above needs to be done correctly for every country your clients operate in — and every step of the compliance and licensing process carries its own separate fee.

However, software platforms that want to embed payments do not need to do it on their own. By partnering with a third-party payments provider, software platforms can enjoy all the benefits of embedded payments without the drawbacks. And some providers can have you accepting payments in a matter of days rather than the months or years it would take you to get up and running on your own.

Choosing the right embedded payments partner significantly reduces risk by alleviating many of the responsibilities. Good providers will take responsibility for handling compliance issues, updating software and providing clients with technical resources. Some partners can even help you and your clients facilitate payments globally.

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